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Hanoi Knowledge Report - July 2011

Jul 08, 2011
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JULY 2011 |

HANOI

KNOWLEDGE REPORT

ECONOMIC OVERVIEW
The Government's primary focus on inflationary control policy has made the whole economy growth rate increase at a slower pace than previously. The first half of 2011 saw a GDP growth rate of 5.57%, which is lower than last year's growth in the same period of 6.16%. In the first six months of 2011, new registered FDI was approximately US$4.69 billion (equaling 52% of that registered in the first half of 2010) and disbursed capital totaled US$5.3 billion (98% of that recorded for the first six months of 2010). Processing and manufacturing industry, construction, accommodation and F&B services rank highest among the FDI sectors while the real estate sector ranks fifth. Inflation remains a hot issue despite the fact that Q1 saw great efforts in controlling inflation from the Government. M-o-M CPI changes were 3.32%, 2.21% and 1.09% for April, May and June, respectively. Although the Government kept the expected inflation rate for 2011 at 15%, specialists from the Ministry of Planning and Investment declared the rate would stand at 17-18% in the best scenario. The quarter's statistic for international trade deficit was approximately US$3.637 billion, much higher than last quarter's deficit of US$3.02 billion although the deficit level in June itself was the lowest since September 2010. Total retail and services sales for the whole quarter were approximately VND459,900 billion, posting a slight increase against Q1/2011. The number of international arrivals was recorded at 1.454 million people, showing a minor q-o-q decrease of about 4%.

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JULY 2011 |

HANOI

KNOWLEDGE REPORT

INFRASTRUCTURE DEVELOPMENT OF HANOI
Infrastructure has always been a principal factor influencing real estate value. Also, its development directly supports that of the economy. In recent years, Hanoi has invested extensively in expanding and improving its transportation network to support economic growth and population growth. Most upgrading works will be included in the Hanoi's Urban Development Plan until 2030, including the long-term vision up to 2050 that is currently up for examination. Major infrastructure works planned for development in Hanoi involve the following: Development planning of the railway system in Hanoi RAILWAY In addition to the present system, Hanoi identifies 4 new lines: Number 1: an aerial railway line connecting Ngoc Hoi and Yen Vien through the city's center, 38.7km long, serving the North-East and South outskirts of Hanoi. Number 2: Noi Bai ­ City Centre ­ Thuong Dinh, 33.7km, this will be the trunk line connecting important destinations in the inner city such as Dong Anh New Urban Area, the new administrative complex in Tu Liem, the Old Quarter, National Highway 6 and Thuong Dinh. Number 3: Nhon ­ Hanoi Station ­ Hoang Mai, 21km, connecting the West, South and City Centre, involving both aerial and underground metro. Number 4: Hanoi ­ Ha Dong, 14km, urban railway with stops at Cat Linh - Hao Nam - La Thanh - Thai Ha - Lang - Nga Tu So - NH 6 Thuong inh - Ha ong - Ba La. Number 5: South Ho Tay ­ Ngoc Khanh ­ Lang ­ Hoa Lac. The 34.5-km route is planned to connect the CBD and the urban areas along the Lang ­ Hoa Lac axis.

Source: General planning for the construction of the capital until 2030

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JULY 2011 |

HANOI

KNOWLEDGE REPORT

INFRASTRUCTURE DEVELOPMENT OF HANOI
OVERHEAD ROADS In 2010, the transportation department of Hanoi proposed the construction of six overhead roads between 2010 and 2015. These projects are expected to cost more than VND 32trn (US$1.65bn). The overhead roads would cover: Lac Long Quan - Yen Phu road; Nga Tu So - Nga Tu Vong - Minh Khai - Vinh Tuy bridge road; Noi Bai - Mai Dich - Phap Van; Hanoi Railway Station - Xa Dan - Pham Ngoc Thach - Ton That Tung - Kim Giang road 70; Tran Duy Hung - Lieu Giai - West Lake; and, Giang Vo - Lang Ha - Thanh Xuan. BRIDGES From now until 2015, Hanoi will complete Dong Tru, Nhat Tan, Phu ong 2, Vinh Thinh, Vinh Tuy (stage 2) bridges and prepare to build Thuong Cat, Tu Lien, Hong Ha, Me So bridges over the Red River as well as other bridges over Nhue, Day and Duong rivers. 35 bridges in the rural districts will also be improved. ROADS Urban roads Le Van Luong Extended: This 5 km road running from Van Phuc to Yen Nghia Ward in Ha Dong District was completed in September 2010. The 40 m wide road supports a speed limit of 80 km/h. This road links the urban centre of Hanoi to Ha Dong District and reduces traffic congestion on Nguyen Trai. Nhat Tan ­ Noi Bai Road: This 12.1 km road has six lanes and width ranging 80-100 m. This route starts from Vinh Ngoc intersection and ends at Minh Phu (Soc Son). According to the schedule, construction will begin in Q2/2011 and complete before year-end of 2013. Bridges over the Red River in Hanoi

Source: General planning for the construction of the capital until 2030

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JULY 2011 |

HANOI

KNOWLEDGE REPORT

INFRASTRUCTURE DEVELOPMENT OF HANOI
Hanoi ­ Hung Yen Dyke Road: This road is 10 km and runs from Chuong Duong Bridge to the Hanoi ­ Hung Yen border. After the completion at year-end 2010, it has not only connected the CBD to Long Bien and Gia Lam Districts, but also increased the traffic flow between Hanoi and Hung Yen. The Ring Roads Ring Road No.1 This 23 km Ring Road runs through Nguyen Khoai ­ Tran Khat Chan ­ Dai Co Viet; Kim Lien ­ O Cho Dua ­ Hoang Cau; and Voi Phuc ­ Cau Giay. Part of this road from O Dong Mac to Nguyen Khoai Dyke section has not cleared ground. Ring Road No.2 With a length of 43 km, this road connects the entire CBD (including Hoan Kiem, Hai Ba Trung, Ba Dinh, Cau Giay and Tay Ho Districts). Some sections are still in land compensation stage. Estimated total project cost of this section is about US$98 million (VND1.8 trillion). Ring Road No.2.5 is situated between Ring Road No.2 and Ring Road No.3. With a total length of about 21 km starting from the Ciputra Urban Area and ending at Ring Road No.3. The first phase, from Tran Thai Tong to Trung Kinh Street, was projected to construct within two years time, from 2010 to the end of 2011. Ring Road No.3 With a total length of approximately 65 km, Ring Road No.3 connects industrial parks and urban areas from Bac Thang Long ­ Noi Bai through My Dinh ­ Me Tri Ha ­ Nam Trung Yen to Linh Dam and Dinh Cong. It will allow more traffic to circumvent the crowded city centre. Ring Road No.3 includes several existing roads. Phase 1 was completed in February 2010, and Phase 2 from Thanh Xuan junction to Linh Dam started in March 2011 and will be completed in 2013. Ring Road No.4 The 136-km, 6-lane Ring Road No.4 will link National Highways and centralized highways, Industrial Parks, and Hanoi's satellite urban areas. This highway measures 90 ­ 110m in width and will pass through several districts and provinces around www.colliers.com/vietnam Pg 4 Road network to and from Hanoi

Source: General planning for the construction of the capital until 2030

Hanoi, including: Phuc Yen, Me Linh (Vinh Phuc); Dan Phuong, Hoai Duc, Thuong Tin, Ha Dong (old Ha Tay); Van Giang, Yen My, Van Lam, Nhu Quynh (Hung Yen); Tien Son, Tien Du, Yen Phong Hiep Hoa (Bac Ninh), and Soc Son (Hanoi). It will also cross the Red, Duong and Cau rivers. The project was divided into phases and work will begin soon to meet the goal of completing the project before 2020.

KNOWLEDGE REPORT | Q2 2011 | GOLF COURSES | HANOI

Golf courses
Currently, there are 27 operating golf courses in Vietnam, many of which are developing/upgrading their area and facilities. These 27 golf courses are located in 17 provinces throughout Vietnam, of which there are 12 in the North, 7 in the Central region and 8 in the South. The country's rising popularity as a golf destination is becoming more and more visible as the construction,design and services quality are getting considerably better. In the North, 10/12 golf courses are located within the Northern Key Economic Zone. Hanoi and Vinh Phuc each have three courses, Hai Phong has two and Hai Duong, Quang Ninh each have one. The courses in Hoa Binh and Ninh Binh have 54 holes (The Royal Golf Club in Ninh Binh will be completed with fully-functioning 54 holes in 2014 from 18 holes currently). Eight of the courses are located near the mountains and take maximum advantage of the panoramic mountain views and water surface while the rest are placed near the coastline or big cities for the convenience of golfers. Golf courses in the North are relatively new, especially in comparison with those in the South, since 9/12 courses started operation only in the last 5 years (2006-2011). A number of factors and terms affect the fee structure (which consists mainly of membership, annual fee, green and caddie fee) of a golf course in the North of Vietnam, such as: Location: which explains why the fee structures of the strategically positioned Van Tri GC and Hanoi GC's are a few times higher than others for similar terms and number of holes.

Year Term: Popular year term for a membership ranges from 25 to 30 years, but some GC's count that term from the date of contract while others refer to the year of completion of the GC's. More flexible short-term memberships of 1-5 years are offered by some GC's. Number of Holes: A GC with 18 holes often offer two types of membership, the 9-hole and the 18-hole. A similar method could be applied by other GC's with 27, 36 and 54 holes. Average entry fee for an individual 18-hole membership is approximately US$50,000 (for year terms between 25 ­ 35 years, however, the range of fee is fairly wide, from US$20,000 to US$132,000). Entry fee for an individual 36hole membership is US$48,000 on average with a range between US$24,000 and US$86,000. Course and Hole Design: View, terrains (including finelydesigned sand dunes, water or lake, highland ridges and others) and holes difficulty play a very important role in attracting golfers. Also, having an international golf course design team or an endorsement from a prominent golfer associated with a development can enhance greatly the course's image. Membership Type: Individual, Family and Corporate membership, of which Corporate type is sub-categorized into different options (with fixed and/or floating nominees). Members' guests and visitors may play but have to pay hefty charges (including green fee, caddie and golf cart fees) while members are free from green fee and get discounts on using services and facilities. Golf course developments in Vietnam, however, are in the early phase; and a few points can be made here:

Golf courses in the North of Vietnam

Golf is a luxury sport in Vietnam given a low level of
disposable income. Most golfers are wealthy and influential businessmen and politicians, thus playing golf is also considered a good chance to network.
Source: Research and Valuation, Colliers International Hanoi

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KNOWLEDGE REPORT | Q2 2011 | GOLF COURSES | HANOI

Typically, land use rights are limited to 50 years for
golf course projects which can limit the liquidity of the investment and hence the availability of capital.

Membership fees and service charges, although high,
do not yield much financial benefit to golf course developers. Instead, they aim at undertaking high-end residential projects included in the golf site. Golf can be developed within a resort and constitute an add-on facility of it, or as an individual project. In either case, the developers build and offer holiday homes or villas for sale, sometimes under a Timeshare contract. However, this presents some risks to the developer, especially during the downturn of the real estate market when high-end housing becomes most vulnerable. Moreover, if a golf course complex does not incorporate full facilities and add-on infrastructure, it may have difficulties in attracting potential high-income buyers. FUTURE SUPPLY As per the Decision 1946/QD-TTg of the Prime Minister dated 26/11/2009, Vietnam will have 89 golf courses by 2020, of which 27 are currently operational and expanding. 27 courses in the North would take up 3,365 hectares of land, while the Central and the South will have 37 and 25 projects respectively, requiring 3,782 and 2,837 hectares of land. The average area of each golf course is 112.2 hectares, and a large number of projects would have 18 holes and 36 holes. Most future golf course development plans will include detached villas for sale. Nevertheless, the Ministry of Investment and Planning reported a number of issues regarding the national planning for golf projects. Some of these problems involve projects that are suspended/cancelled, projects proposed by some provinces out of the scope of the above Decision and unlicensed golf courses. A final solutions from the Prime Minister is to be expected.

NEW LEGAL ISSUES
In an effort to curb inflation and keep the real estate bubble in check, the government issued Decree 11/NQ-CP dated 24/02/2011, Instruction 01/CT-NHNN dated 01/03/2011 and Official Dispatch 2956/NHNN-CSTT dated 14/04/2011 putting a cap on non-productive credit line of the commercial banks at 22% of the total by end of June 2011, and at 16% by year end. Bank loan has always been the main funding source for real estate developers and main category within the non-productive credit line of banks in Vietnam. However, due to this credit type's popularity and lucrativeness, Vietnamese banks find it hard to comply with the SBV's instruction. Statistics from the State Bank of Vietnam showed that at the current date, 20 banks are still struggling to cut outstanding non-productive loans, mostly to real estate developers, down to 22%. At the end of the year 2010, local banks had lent a total VND228 trillion (over US$11 billion) to the real estate sector, up 23.5% from a year earlier. The SBV responded to this situation saying they will not postpone the 30/06/2011 deadline. In reference to this, official statistics stated that in 2010, Ho Chi Minh City's trading floors closed 4,311 transactions with a total value of VND6,509 billion (over US$326 million), and in Hanoi, 3,929 transactions were concluded with a total value of VND18,680 billion (over US$934 million) ­ almost triple that of Ho Chi Minh City. According to the Ministry of Construction (MOC), property prices varied differently across the localities and sectors. In Hanoi, land prices surged while apartment prices fluctuated moderately at high levels. HCMC market was much more stable with regards to prices and number of transactions. This discrepancy hints at the potential for growth of Hanoi's property market while HCMC's market is maturing.

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KNOWLEDGE REPORT | Q2 2011 | OFFICE | HANOI

Office
GRADE A
There were no new Grade A buildings coming online in Q2/2011. However, the sector's performance did show significant improvement with average occupancy rate up 7.74 percentage point and average rentals up US$3.4 compared to Q1 2011. This has been the largest increase after 6 consecutive quarters, and it can be seen from the graph below that the market broke the 90% and $40 marks. Although the months ahead are still laden with worrisome signs of continued credit crunch and prudent financial policy, at least some level of confidence has been restored to the developers. Slowly but surely, buildings with vacancy are filling up with both big and small new office tenants. Still, the developers are having to consolidate their marketing and sales strategy in order to compete efficiently. Tenants now have much more bargaining power and choices, therefore some movements within the same grade or from one grade to another are to be expected.

Average rent and occupancy rate of grade B office

Source: Research and Valuation, Colliers International, Hanoi

PERFORMANCE BY DISTRICT
There still exists a significant difference between the inner districts of Hanoi (Hoan Kiem, Hai Ba Trung, Dong Da and Ba Dinh) and the new outlying districts (Cau Giay, Tu Liem, Long Bien and Thanh Xuan) with regards to building performance. The majority of office space in Hanoi ­ over 560,000 sqm ­ rests within the old Hanoi districts while the outlying districts are home to nearly half this amount ­ over 230,000 sqm. Hoan Kiem, with its superior location, has the largest total floor space and the highest occupancy rate at 94% for the highest rent at US$40/sqm/month. At the other end of the spectrum, Long Bien has the lowest amount of floor space for the lowest rent at US$15/sqm/month. In the Knowledge Report for Q1 2011, Colliers compared the performance of the new CBD districts of Cau Giay and Tu Liem with that of the CBD districts of Hoan Kiem and Hai Ba Trung. The constrast shown there will stay for at least the foreseeable future. This year, Keangnam Landmark Tower and Indochina Plaza Hanoi will come on stream, adding a huge amount of space to the current stock while both are still actively seeking occupiers. Therefore, we can expect that the performance indices of the market segment there will be negatively affected.

Average rent and occupancy rate of grade A office

Source: Research and Valuation, Colliers International, Hanoi

GRADE B
Surprisingly, what happened to Grade A and Grade B this quarter was exactly the reverse of what had happened in Q1 2011. While Grade A posted improved results this quarter, Grade B showed worsened performance. Average occupancy rate and average rentals dropped from 87.9% to 83.6% and from US$26.1/sqm/month to US$25.1, respectively. This further strengthened the downward trend that has immersed the market in stagnancy for almost two years now. Some buildings in the outer districts performed poorly, losing occupancy within a significant amount of space. On the flip side, floor selling has helped some others to boost occupancy rate remarkably. This has proven to be a powerful tool which developers can use to deal with worsened business conditions.

Average rent and occupancy by district, Q2 2011

Source: Research and Valuation, Colliers International, Hanoi

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KNOWLEDGE REPORT | Q2 2011 | OFFICE | HANOI

OUTLOOK
In 2011, 240,000sqm of Grade A and B office space will come on line, equivalent to nearly half of the current stock. The two high rise buildings Keangnam Hanoi Landmark Tower and EVN Building alone account for 45% of this new supply. For the period 2011-2014 and onward, a huge amount of stock is in the pipeline and poised to increase overall total floor area threefold to reach nearly 3,000,000sqm after 2014. Grade B sector will face the most competitive pressure, probably because property developers, drawing from their recent experience, expect that the buildings with moderate rent prices and quality will stand more chance to perform well despite the risks of inflation and economic stagnancy. Grade A sector will face competition from both within itself and from Grade B. Overall, market supply will expand at a faster pace than the GDP of Hanoi, hinting at downward pressure on rent rates and occupancy. Currently, the majority of enquiries come from tenants who require office space of less than 250sqm. However, a number of large space tenants sought to capitalize on lower price offers in same or lower grade buildings and new large space users have come to Hanoi, especially from the banking, IT, insurance and education industries. These occupiers and investors are actively looking for premises and therefore, building developers can expect to see more enquiries for space over 500sqm. In recent years, the market has seen a number of largescale projects come on line with a vast amount of floor area such as MIPEC Towers, Keangnam Hanoi Landmark Tower, EVN Building, BIDV Tower and Charmvit Tower. In order to secure occupants and ease pressure from banks and financiers to secure a rent roll, some landlords have chosen to floor sell, or virtually to lease, on a long-term basis, an entire floor or several floors to a secondary lessor who subleases the floors to individual tenants. Colliers anticipates that this trend will strengthen in the near future, especially for those buildings with a significant amount of floor space.
Property : Developer: Location: Grade: GFA : NFA : Completion Date: Rent:

FOCUS
Charmvit Tower Charmvit Group 117 Tran Duy Hung, Cau Giay Dist. A 53,600 sqm 45,000 sqm August 2010 $27-30 /sqm/month (incl.S/C & excl.VAT)

Property : Developer: Location: Grade: GFA :

TTC Building Trading & Technology Company - TTC Duy Tan Str., Cau Giay Dist. B 13,360 sqm Q1-2011 $21-23 /sqm/month (incl.S/C & excl. VAT)

Estimated future supply of office space in Hanoi

Completion Date: Rent:

Source: Research and Valuation, Colliers International, Hanoi

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KNOWLEDGE REPORT | Q2 2011 | RESIDENTIAL | HANOI

Residential
OVERVIEW
The Residential market enters Q2/2011 with many changes versus the last quarter. The market reports strong increase in the average price at the end of March and in April 2011. Land prices in some locations in the West, especially the projects along National Highway 32 which is slated to complete soon, have increased significantly by 20% - 30% compared to Q1/2011. The price level was between 35 - 45 million VND/sqm, equivalent to US$1,700/sqm to US$2,200/ sqm. However, in May and June the market cooled down. Average price dropped by 3 million to 5 million VND/sqm compared to the beginning of Q2. The apartment for sale sector showed a similar scenario, whereby prices raised in April and then dropped at the end of Q2.

Units launched in Q2 2011 by grade

PROJECTS LAUNCHED IN Q2 2011
In Q2/2011, several high end apartment projects launched, mainly in Hai Ba Trung district which accounts for 54% of total units launched. Cau Giay district comes in the second place with 17% of the total new supply. Worthy of note are the Times City project at 458 Minh Khai street by Vincom Group, estimated to be completed in 2014 with approximately 8,000 units; the Mandarin Garden with 1,000 high end apartments at Lot N03 - South Tran Duy Hung new urban area and 90 high-end units at the Eurowindow Multicomplex project on Tran Duy Hung street are launched in June.
Source: Research and Valuation, Colliers International, Hanoi

SUPPLY
New supply from 2011 to 2014 will amass mainly in the West of Hanoi which is poised to become the new CBD of the city. Approximately 28% of total new supply will be in Ha Dong district, 15% in Tu Liem, 15% in Cau Giay, 10% in Hai Ba Trung, 6% in Long Bien, 6% in Thanh Xuan, 8% in Tay Ho, 6% in Dong Da, 5% in Hoang Mai and 1% in Ba Dinh District. It is estimated that over 11,000 new apartments are in the pipeline in 2011. Despite the fact that high prices deter a lot of potential buyers, the majority of new supply is in the midand high-end segments.

Units launched in Q2 2011 by district

New supply from 2011 to 2014 by district

Note: No new units in the other districts Source: Research and Valuation, Colliers International, Hanoi

In the second quarter of 2011, the high-end apartments segment takes up a big chunk of the new supply, accounting for 71% of the total with 4,500 units. The mid-end segment comes second at 21% of the total with 1,300 units. Just 8% (500 units) comes from the low-end projects.

Source: Research and Valuation, Colliers International, Hanoi

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KNOWLEDGE REPORT | Q2 2011 | RESIDENTIAL | HANOI

DEMAND
Recently, most buyers (estimated 60-70%) in Vietnam are investors. However, in recent years, the number of end users was rising, with many young couples seeking to move into a new home and provincial residents wanting to relocate to the city. The State Bank has tightened its credit policy to control the cashflows into stock and real estate market, i.e nonproductive areas. Those buyers who rely on bank loans to purchase property now face greater difficulty and as a result, demand has shrunk further compared to the last quarter.

The residential market is still waiting for positive points from the financial market and credit policies of banks, however this will not occur in the latter part of 2011 and will be unlikely in 2012.

FOCUS
Property : Developer: Location: Total units: Launching time: Current market price: Times City The Vincom Group Minh Khai St., Hai Ba Trung dist. Approx. 8,000; Mid-high end 25 blocks of 27 ­ 35 stories April 2011 US$1,400 - US$1,800/sqm

MARKET PRICES
Market prices by segment

Source: Research and Valuation, Colliers International, Hanoi

The generally consistent trend of steady growth of apartment prices that has continued for over a year prior to Q2/2011 has now come to an end. From the graph above, the upward line across all sectors has reversed. This notwithstanding, the degree of reduction is minor, from 1% to 2% for all segments. The strict credit policies enforced by the SBV and the crisis of the stock market have made the real estate market capital -thirsty and many mortgaged properties have been offered for sale. Those factors reflect badly on the residential market price trend.

Property : Developer: Location: Total units: Launching time: Current market price:

The Mandarin Garden Hoa Phat Group Me Tri St., Tu Liem dist. 1,008; High-end June 2011 US$2,100 - US$2,300/sqm

OUTLOOK
The residential market instability in Q2/2011 underlines the strong impact of the financial market on the real estate. Developers have now started to, really by necessity, pay more attention to the interests of the buyers. More promotional policies began to be used and unfavourable terms for buyers are being reviewed. For instance, the Usilk City Project developer is willing to give away free retail space from 20 to 40 sqm if the apartment buyers make a one-time payment upfront. The Times City project developer eliminated the pegging of price rates to the CPI.

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KNOWLEDGE REPORT | Q2 2011 | RETAIL | HANOI

Retail
According to the latest AT Kearney's 2011 Global Retail Development Index, there is an enormous change in Vietnam's ranking over the last years: The country's ranking plummeted from the first position in 2008 to the 23rd position in 2011. The report pinpointed slow infrastructure and distribution network development as two main reasons to hamper foreign investment in this area. However, a good thing is that over the last 10 years, Vietnam has been 1 of the 5 countries consistently ranked in the top 10, according to the same company's report GRDI: A 10-year restrospective. As such, Vietnam surpassed other developing markets in terms of retail spending per capita (12% CAGR 2001 ­ 2010) and retail space. Therefore, big international retail investors are still eying Vietnam as their next potential destination. In the first half of 2011: Vietnam's total retail revenue was VND914,000 billion (equiv. to US$44.58 billion), posting a yo-y increase of 22.8% which follows the consistent growth path during the years 2005-2009. The Garden, previously considered as a department store by Colliers, is now reclassified as a shopping center since it lacks central management and the cashier format normally seen in department stores. Accordingly, total supply for modern retail spaces increased by 10.33% against Q1/2011 while shopping centers now account for 42% of the total retail area.

RENTS

OVERVIEW OF HANOI RETAIL LEASING MARKET
The Hanoi retail market has been gaining momentum in recent years despite the economic slowdown. Traditional street vendors and shop houses now face new competitors in Hanoi such as large modern supermarkets, convenience stores, high-end shopping centres and department stores. However, shop houses still comprise a major share of the current retail market in the city. Retail Podiums are typically gathered in the CBD while Shopping Centers and Department Stores are scattered all around the city. However, CBD retail centers enjoy strong occupancy and rents, while new comers in the West still struggle in filling up the vacant spaces.

In Q2/2011, the slight increase of 0.92% in the average rent of non-CBD retail centers could be explained by the appearance of Pico Mall, which has a prime location for retail in Dong Da District and is asking relatively high rents. The retail centers in the West are offering slight discounts and favourable terms. Meanwhile, the temporary closure of Trang Tien Plaza, a long standing and well-known shopping center in the CBD still puts the pressure on rental rates, resulting in a 2.6% increase in this submarket.

OCCUPANCY
By location, retail in inner districts (including Hoan Kiem, Hai Ba Trung, Dong Da and Ba Dinh) continued its strong performance by remaining at full average occupancy whereas outer areas posted an average vacancy rate of 87%. By retail format, retail lobbies showed impressive performance as 100% of the total area is occupied. Regarding department stores, Parkson and Grand Plaza have witnessed opposite situations where Parkson's vacancy rate has stood at 0% since its opening in Q3/2008 and Grand Plaza's vacancy has been very high. Possible reasons could be inappropriate floorplan and disagreement between the developer and tenants at the beginning of this year. This could be explained by the plan of Grand Plaza to close the whole department store for renovation, which is expected to start from August. Shopping centers also had a successful quarter with the average occupancy of 95%. The newest entrant, Pico Mall has filled up approximately 88% of its huge retail area with a strong tenant base; a number of leased lots are fitting out and would come online soon. However, the amount of visitors to Pico Mall is not satisfying the developer and is expected to increase when the entire complex (or at least the office tower) is completed, and Megastar Cineplex starts operation.

NEW SUPPLY
Pico Mall ­ retail component within the Mipec Complex building (which will include an office and two apartment towers) officially started operation on April 2 nd. Located on Tay Son Street and designed by Finenco and PTW, Pico Mall features over 30,000 sqm of retail area and expects to serve not only residents of the two apartment towers but also Hanoi inhabitants in the greater neighborhood. As at end of June, Pico Mall has filled up 88% of the space with various tenants coming from different retail brands including Citimart, Pico Electronics, Pico Decor, Megastar and other international brands. Although located 100 m from Parkson ­ a well-known department store, Pico Mall has done well in attracting tenants and visitors. These two developments will create an interesting retail center.

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KNOWLEDGE REPORT | Q2 2011 | RETAIL | HANOI

FUTURE SUPPLY
The second half of 2011 is expected to witness exciting retail events with a boom of supply for modern retail spaces coming on stream. All of the three upcoming retail centers are located in outskirt districts of Hanoi, one in Tu Liem, two in Long Bien:

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Huge supply will also come on stream in the short-term future. As at year end of 2013, the forecast total market supply for modern retail area would be approximately 1,600,000 sqm, which is more than five times the current supply. Some mega-projects are Me Linh Plaza Ha Dong (2012, GFA of 55,000 sqm), Ciputra Hanoi Mall (2012, GFA of 130,000 sqm), U-Silk City (2013, GFA of 70,000 sqm), Royal City (2013, GFA of 200,000 sqm) and Times City (2013, GFA of 230,000 sqm).

Transaction Services Landlord Representation Investment Advisory Acquisitions & Disposals Residential Sales & Leasing

CORPORATE REAL ESTATE SERVICES
NEW OFFICE 10th floor, Capital Tower Building 109 Tran Hung Dao street, Hoan Kiem district Hanoi, Vietnam Tel: Fax: 04 3941 3277 04 3941 3278

The second office is still at 39A Ngo Quyen street, Hanoi Tel: Fax: Email: Website: 04 2220 5888 04 2220 1133 info@colliers-hanoi.com www.colliers.com/vietnam www.colliers-hanoi.com

Contact details Ms Anna Lomas Market Research and Valuation--Manager Anna.Lomas@colliers-hanoi.com Mobile: +84 914 962 505 Mr Nguyen Tien Quoc Market Research and Valuation--Senior Researcher Quoc.Nguyen@colliers-hanoi.com Mobile: +84 983 344 579

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